Legislature(2017 - 2018)HOUSE FINANCE 519

04/13/2017 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
-- Delayed to 2:00 PM --
Moved CSHB 127(FIN) Out of Committee
Moved HB 47 Out of Committee
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
HOUSE BILL NO. 47                                                                                                             
     "An  Act   requiring  certain  municipalities   with  a                                                                    
     population  that  decreased  by more  than  25  percent                                                                    
     between 2000  and 2010 that participate  in the defined                                                                    
     benefit  retirement  plan   of  the  Public  Employees'                                                                    
     Retirement  System  of  Alaska  to  contribute  to  the                                                                    
     system an  amount calculated by  applying a rate  of 22                                                                    
     percent of the  total of all base salaries  paid by the                                                                    
     municipality to  employees of the municipality  who are                                                                    
     active members  of the system during  a payroll period;                                                                    
     authorizing  the administrator  of the  defined benefit                                                                    
     retirement  plan of  the  Public Employees'  Retirement                                                                    
     System  of  Alaska  to  reduce  the  rate  of  interest                                                                    
     payable by  certain municipalities that  are delinquent                                                                    
     in transmitting employee  and employer contributions to                                                                    
     the  retirement plan;  and providing  for an  effective                                                                    
3:23:24 PM                                                                                                                    
PAUL LABOLLE, STAFF, REPRESENTATIVE NEAL FOSTER, discussed                                                                      
the bill:                                                                                                                       
     SB 125 changed the PERS system from a multiple employe                                                                     
     r plan to a cost share plan. It transferred the indivi                                                                     
     dual liability of the 160 PERS employers and consolida                                                                     
     ted it so that all the employers share in that liabili                                                                     
     SB 125 also created what is commonly referred to as th                                                                     
     e 2008 salary floor.          This requires employer's                                                                     
     contribute 22%  of   annual  salaries or 22%   of  FY08                                                                    
     salaries,                  whichever                 is                                                                    
     greater. The floor was instituted                                                                                          
     to ensure that the system could not be "gamed" by disc                                                                     
     ouraging employers from replacing PERS                                                                                     
     employees with contract hires to reduce their base con                                                                     
     tribution to the system.                                                                                                   
     Some municipalities have found themselves under the 20                                                                     
     08 floor through no fault of their own. A large                                                                            
     change in population results in a reduced tax base, wh                                                                     
     ich affects the services a city can provide. As that                                                                       
     financial reality drives a city to downsize, current l                                                                     
     aw exacerbates this problem by keeping their PERS cont                                                                     
     ribution at the 2008 level. This bill targets the comm                                                                     
     unities whose population has dropped by more                                                                               
     than 25% since the previous census.                                                                                        
     HB 47 will address this issue in two ways:                                                                                 
     1.Establish a new floor of FY 2012 for communities who                                                                     
     se population decreased by more than 25%                                                                                   
     between 2000 and 2010.                                                                                                     
     2.Allows the PERS administrator to negotiate penalty i                                                                     
     nterest rates on delinquent payments.                                                                                      
     HB 47 does not intend to repeat the "2008 floor" debat                                                                     
     e but to correct one of the unintended                                                                                     
     consequences caused by the arbitrary line that debate                                                                      
3:25:51 PM                                                                                                                    
Representative Ortiz  understood the intent of  the bill. He                                                                    
wondered how  the department assessed things  at present. He                                                                    
wondered  if  there was  a  process  in place  to  determine                                                                    
whether municipalities  were doing  their part.  He followed                                                                    
up on his question.                                                                                                             
Mr.  LaBolle replied  that  the original  bill  a couple  of                                                                    
years ago -  the bill before the committee the  debt was not                                                                    
3:28:31 PM                                                                                                                    
AT EASE                                                                                                                         
3:28:36 PM                                                                                                                    
Representative  Pruitt  MOVED  to  ADOPT  Amendment  1,  30-                                                                    
LS028\A.1  (Wayne, 4/8/17)  (copy  on file).  [Note: due  to                                                                    
length of  amendment it  is not included  here. See  copy on                                                                    
Co-Chair Foster OBJECTED.                                                                                                       
Representative Pruitt explained the amendment.                                                                                  
3:32:04 PM                                                                                                                    
Co-Chair  Foster was  open  to  hearing from  Representative                                                                    
REPRESENTATIVE  JENNIFER JOHNSTON,  stated  the  bill was  a                                                                    
great example about how the state  may not be able to manage                                                                    
the unfunded  retirement liability. She stated  that she had                                                                    
previously  been  in the  Alaska  Municipal  League and  had                                                                    
considered  the   issue  of  the  unfunded   liability.  She                                                                    
believed  the   larger  entities  needed  to   manage  their                                                                    
employees -  not to  penalize individuals  for the  way they                                                                    
did business. She thought the  committee should reassess the                                                                    
fiscal note.                                                                                                                    
3:37:04 PM                                                                                                                    
Representative   Johnston  asked   if   the  committee   had                                                                    
addressed the 2008 floor. It  gave other abilities to manage                                                                    
the unfunded liability.  She thought it was  time to address                                                                    
the issue.  She was looking  to fiscally manage  an elephant                                                                    
in the room.                                                                                                                    
3:39:12 PM                                                                                                                    
Representative Pruitt  thought the  last component  was very                                                                    
important. He stressed  that if the state  was not enforcing                                                                    
the issue  it could come  up in  the future. He  believed it                                                                    
needed to be dealt with                                                                                                         
Co-Chair  Seaton  asked  the  Department  of  Administration                                                                    
(DOA) to address the committee.                                                                                                 
Representative Johnston  had been  hesitant to say  the last                                                                    
statement, because of possible liability issues.                                                                                
KEVIN   WORLEY,  CHIEF   FINANCIAL   OFFICER,  DIVISION   OF                                                                    
RETIREMENT  AND  BENEFITS,   DEPARTMENT  OF  ADMINISTRATION,                                                                    
stated that the division looked  at annual salaries, and had                                                                    
recently  completed the  FY 16  evaluation  in the  previous                                                                    
June. Those salaries were compared  to the floor of 2008. He                                                                    
stressed that  statutes stated that  there should be  a bill                                                                    
for the difference between the  actual paid salaries and the                                                                    
2008 floor.                                                                                                                     
3:42:34 PM                                                                                                                    
KATHY  LEA, CHIEF  PENSION OFFICER,  DIVISION OF  RETIREMENT                                                                    
AND BENEFITS, DEPARTMENT OF  ADMINISTRATION, shared that her                                                                    
division  continued to  enforce termination  and there  were                                                                    
three aspects to termination.                                                                                                   
3:47:35 PM                                                                                                                    
Representative  Thompson  wondered  whether the  cost  of  a                                                                    
termination study was approximately $15,000.                                                                                    
Ms.  Lea  replied   that  it  depended  on   the  number  of                                                                    
terminated employees.                                                                                                           
Representative Wilson  wondered whether a  termination study                                                                    
would be required after a division ceased to exist.                                                                             
Ms.  Lea  answered  in  the negative,  if  the  people  were                                                                    
assigned to another PERS position.                                                                                              
Representative Wilson  wondered whether a  termination study                                                                    
was required when 15 employees were lost.                                                                                       
Ms. Lea answered in the affirmative.                                                                                            
Representative Wilson queried the cost of the study.                                                                            
Ms. Lea answered  it was difficult to answer  because it was                                                                    
based on individual employees.                                                                                                  
Representative Wilson  stressed that the state  required the                                                                    
study, to  ensure that the  employer was paying  enough into                                                                    
the retirement.                                                                                                                 
Ms.  Lea stated  that  the  study was  done  to examine  the                                                                    
individual employees retirement.                                                                                                
3:51:24 PM                                                                                                                    
Representative  Wilson thought  it was  almost as  big of  a                                                                    
deal than the original bill  to the smaller communities. She                                                                    
spoke  to  individuals  being penalized  by  the  state  for                                                                    
something that was not their fault.                                                                                             
Ms. Lea did not characterize it as penalizing.                                                                                  
Representative  Wilson asked  if many  of the  employers had                                                                    
known they would be in the current position.                                                                                    
Ms.  Lea  answered  that  it had  happened  about  10  years                                                                    
earlier. The basic  consideration was how much  the GF could                                                                    
absorb.  The amount  needed to  pay  the unfunded  liability                                                                    
would not change, it was about who would pay.                                                                                   
Representative  Ortiz asked  if  the net  effect of  changes                                                                    
made  in   2008  that  it   was  much  harder   for  smaller                                                                    
communities to comply.                                                                                                          
Mr.  Worley   asked  Representative  Ortiz  to   repeat  the                                                                    
Representative Ortiz complied.                                                                                                  
3:54:50 PM                                                                                                                    
Mr. Worley asked for clarification.                                                                                             
Representative Ortiz reiterated his question.                                                                                   
Ms.  Lea answered  that the  number of  employees with  each                                                                    
employer  varied. There  could  be a  smaller employer  with                                                                    
only one or two employees  covered or a larger employer with                                                                    
hundreds of  employees covered. She  did not believe  it was                                                                    
possible  to   make  a   sweeping  statement   that  smaller                                                                    
employers were more impacted.                                                                                                   
Representative  Ortiz spoke  about  triggering  a study.  He                                                                    
surmised that if a person  was eliminated from a category it                                                                    
could trigger a study.                                                                                                          
Ms. Lea replied in the affirmative.                                                                                             
Representative  Ortiz stated  that moving  employees into  a                                                                    
different classification would not trigger a study.                                                                             
Ms. Lea agreed.                                                                                                                 
3:58:35 PM                                                                                                                    
Co-Chair  Foster   referred  to   Representative  Johnston's                                                                    
statement that the bill was  similar to a bill introduced in                                                                    
2014. He believed the fiscal  note had been indeterminate at                                                                    
the time.                                                                                                                       
Representative  Johnston spoke  to the  issue. She  stressed                                                                    
that  termination  studies were  part  of  the process.  She                                                                    
remarked that the  University of Alaska was  below the 2008,                                                                    
and they were paying for that cost.                                                                                             
4:03:10 PM                                                                                                                    
Co-Chair  Seaton  clarified   the  committee  was  currently                                                                    
addressing Amendment 1.                                                                                                         
Representative  Guttenberg noted  that  it  was possible  to                                                                    
determine liability focusing on  certain groups. He wondered                                                                    
how  much of  the amendment  would challenge  the negotiated                                                                    
agreement rate of 22 percent.                                                                                                   
Ms. Lea clarified her understanding of the question.                                                                            
Representative Guttenberg affirmed.                                                                                             
Representative Guttenberg  asked how  the balance  of burden                                                                    
between larger and smaller communities.                                                                                         
Ms. Lea  answered that it  was specific to the  employer. It                                                                    
was difficult  to make a  generalization. She  stressed that                                                                    
it was  very particular  to the makeup  of the  employer and                                                                    
how their covering.                                                                                                             
Co-Chair Seaton  asked for clarification.  He referred  to a                                                                    
prior fiscal note.                                                                                                              
Ms. Lea answered that the fiscal note was not current.                                                                          
Co-Chair Foster stated  that each time the bill  did not get                                                                    
passed it  meant fiscal liabilities  were adding up.  He did                                                                    
not support the amendment.                                                                                                      
4:08:47 PM                                                                                                                    
Representative Pruitt provided wrap  up on the amendment. He                                                                    
stated the underlying  bill may seem like a  small bill, but                                                                    
it  was a  big deal  for communities.  Likewise, so  was the                                                                    
amendment.  He  stated  the  issue  could  be  addressed  at                                                                    
present  or later  on. He  believed it  was worth  analyzing                                                                    
whether they should move forward on the issue.                                                                                  
Co-Chair Foster MAINTAINED his OBJECTION.                                                                                       
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Ortiz, Pruitt, Thompson, Tilton, Wilson                                                                               
OPPOSED: Kawasaki, Gara, Grenn, Guttenberg, Seaton, Foster                                                                      
The MOTION FAILED (5/6).                                                                                                        
4:12:07 PM                                                                                                                    
Representative Wilson  was sorry  the amendment  failed. She                                                                    
thought the bill picked winners and losers.                                                                                     
Co-Chair  Seaton felt  that increasing  the  budget was  not                                                                    
Representative Wilson interjected it was not $75 million.                                                                       
Co-Chair Seaton  noted the  previous fiscal  note on  a bill                                                                    
had been that amount.                                                                                                           
Representative Wilson stated much had changed.                                                                                  
Representative Pruitt  did support  moving the  bill forward                                                                    
He suspected  that some of  the communities would  be coming                                                                    
back with some of the challenges addressed in Amendment 1.                                                                      
4:15:26 PM                                                                                                                    
Vice-Chair Gara explained the two fiscal notes.                                                                                 
Representative  Wilson  stated  were  not  four  communities                                                                    
written  into the  bill. She  asked if  there was  a way  to                                                                    
cover other communities under the bill in the future.                                                                           
Mr. LaBolle asked for a repeat of the question.                                                                                 
Representative Wilson complied.                                                                                                 
Mr. LaBolle replied in the negative.                                                                                            
Vice-Chair Gara MOVED to REPORT  HB 47 out of committee with                                                                    
individual  recommendations  and   the  accompanying  fiscal                                                                    
Representative Wilson OBJECTED.                                                                                                 
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Thompson, Tilton, Gara,  Grenn, Guttenberg, Ortiz,                                                                    
Pruitt, Foster, Seaton                                                                                                          
OPPOSED: Wilson                                                                                                                 
The MOTION PASSED (10/1).                                                                                                       
There being NO further OBJECTION,  HB 47 was REPORTED out of                                                                    
committee with a  "do pass" recommendation and  with one new                                                                    
fiscal  impact note  from the  Department of  Administration                                                                    
and one zero note from the Department of Administration.                                                                        

Document Name Date/Time Subjects
HB155 Additional Document-AMHTFA Fact Sheet.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Additional Document-SEACC Comments on No Name Bay.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Invited Testimony-Wyn Menefee.pptx HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Letter of Comment-SEACC.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Additional Document-Maps as of 3.3.17.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Opposing Document-Doug Rhodes Letter.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Sectional Analysis 03.07.17.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Sponsor Statement 03.07.17.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Summary of Changes ver O to ver U.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Supporting Document-AFA Letter.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Supporting Document-AFA Response to SEACC.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Supporting Document-Bob Weinstein Letter.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Supporting Document-Federal Legislation.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB155 Supporting Document-Letters Compiled.pdf HFIN 4/13/2017 1:30:00 PM
HB 155
HB 127 Amendment #1.pdf HFIN 4/13/2017 1:30:00 PM
HB 127
HB 47 - Amendment #1.pdf HFIN 4/13/2017 1:30:00 PM
HB 47
HB 127 - Amendments.pdf HFIN 4/13/2017 1:30:00 PM
HB 127
HB47 Actuarial Letter 3.16.17.pdf HFIN 4/13/2017 1:30:00 PM
HB 47